Ambiguous Volatility and Asset Pricing in Continuous Time

• 成果类型: Article
• 署名作者: Epstein, Larry G.; Ji, Shaolin
• 署名单位: Boston University; Shandong University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hht018
• 发表日期: 2013
• 页码: 1740
• 关键词: RUN RISKS MODEL; uncertainty; INFORMATION; calculus; utility; IMPACT

摘要

We formulate a model of utility for a continuous-time framework that captures aversion to ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are presented. First, we derive arbitrage-free pricing rules based on hedging arguments. Because ambiguous volatility implies market incompleteness, hedging arguments determine prices only up to intervals. In order to obtain sharper predictions, we apply the model of utility to a representative agent endowment economy and study equilibrium asset returns. A version of the consumption capital asset pricing model is derived, and the effects of ambiguous volatility are described.